Electricity storage stocks are publicly traded companies whose business involves the storage of electricity.  They include battery stocks and hydrogen stocks (see links), while companies involved in other storage technologies such as pumped hydro energy storage, Compressed Air Energy Storage, capacitors, flywheels, and thermal storage are listed here.

This list was last updated on 3/22/2022.

Dais Analytic Corp. (DLYT)
Dresser-Rand Group (DRC)
Fluence Energy, Inc. (FLNC)
Graftech International (GTI)
Highpower International (HPJ)
Kemet Corp. (KEM)
Maxwell Technologies Inc (MXWL)

If you know of any energy storage stock that is not listed here and should be, please let us know by leaving a comment. Also for stocks in the list that you think should be removed.

The post List of Electricity Storage Stocks appeared first on Alternative Energy Stocks.

John Petersen

In late June I wrote a forward looking article that identified several companies in my energy storage and vehicle electrification group that I expected to perform well or perform poorly during the third quarter. Since short-term market changes are notoriously hard to predict, it’s worthwhile to look back and see where I got things right and where I got them wrong. So I’ll start today with a quick summary table and assess the relative accuracy of my Q3 calls, and then turn my attention to Q4, which is shaping up as a time of bright opportunity for some companies and continuing risk for others.

My list of expected Q3 winners included Exide Technologies (XIDE), Active Power (ACPW) and Axion Power International (AXPW.OB). I was wrong on all three counts because Active Power lost 1.2%, Exide Technologies lost 7.7% and Axion Power lost 20.6%

My list of expected Q3 losers included Valence Technologies (VLNCQ.PK), which lost 98.4% when it filed a voluntary petition under Chapter 11 of the Bankruptcy Code, and Tesla Motors (TSLA), which lost 6.4%. While I was right on both counts, Tesla didn’t perform as poorly as I expected and just last week it completed a $195 million secondary offering that should keep it out of the ditch for a couple more quarters. While I rarely have glowing praise for Tesla’s business model or product line, its management team deserves double kudos for pulling off a critical eleventh hour financing transaction on better terms than I would have thought possible.

Q-4 Winners

Exide Technologies was on my list of likely Q3 winners and it remains on my list of likely Q4 winners. Over the last five years, Exide has reported total earnings of roughly $35 million after restructuring and impairment charges of almost $210 million. Since its earnings were so bad for so long, Exide trades at a 10% discount to book value and 8% of sales while its peers trade at an average of 1.6 times book and 44% to 70% of sales.

I maintain long-term price tracking charts on all the companies I follow and believe Exide’s chart is signaling a turn to the upside in the fourth quarter. If you look at the chart you’ll see that the 10-, 20- 50- and 200-day weighted moving average prices are clustered in a $0.13 range and during the third quarter the 10-, 20- and 50-day averages all moved up through the 200-day average, signaling the beginning of a new trend. Similar chart patterns existed in the summer of 2009 and the fall of 2010. While I’d be reluctant to estimate the next peak, Exide’s past performance is enough to convince me that a double is likely and a good deal more is possible.

Active Power was on my list of likely Q3 winners and it remains on my list of likely Q4 winners. Since the end of June the 10-, 20-, 50- and 200-day averages have all drifted down a couple cents and are currently clustered in a two-cent range. Active Power’s historical stock price behavior is enough to convince me that a double is likely, if not a triple.

Axion Power International was on my list of likely Q3 winners and it remains on my list of likely Q4 winners. The last couple years have been very difficult for Axion as one legacy holder after another decided to liquidate for reasons that had little or nothing to do with Axion’s business and technical progress. As near as I can tell the legacy holders, as a group, are down to something less than a million shares. Since much of the buying over the last couple years has come from readers of my blog, I expect the market dynamic to quickly reverse from a supply driven downtrend to a demand driven uptrend. In addition to price data like I provided for Exide and Active Power, my Axion chart includes a fifth line that tracks 50-day average trading volume to highlight periods of intense selling pressure since January 2010.

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Last week I had the pleasure of delivering a keynote presentation for the 13th European Lead Battery Conference in Paris. For readers who are interested, an online version of my ELBC presentation with voiceover is available here.

While other lead battery manufacturers who presented at the ELBC talked about improving their charge acceptance rates from 0.05 to 0.1 amps per amp-hour of rated capacity, Axion was presenting charge acceptance rates of 2.0 to 3.0 amps per hour of rated capacity with four to five times the cycle life. These are not modest incremental gains like one typically sees in the battery world. Instead, they’re disruptive step changes that have several first tier OEMs and battery users making substantial direct investments in the kind of redundant validation testing that always precedes the adoption of a new technology for use in mass market products. While Axion’s PbC is not a silver bullet for all battery applications and the company still faces a variety of manufacturing, commercialization and financing risks, the principal technical risks of developing an entirely new class of energy storage device have, in my view, been successfully overcome.

In addition to my three primary picks, I’m seeing interesting chart patterns develop for Altair Nanotechnologies (ALTI), Johnson Controls (JCI), Maxwell Technologies (MXWL) and UQM Technologies (UQM). The stock prices for all four of these companies have been beaten down this year and could well be poised for a turnaround.

Q-4 Losers

The scariest company in my tracking list is A123 Systems (AONE) which peaked shortly after its IPO and has been on a downhill slide ever since. In May and June of this year, A123 announced a pair of toxic financing deals that had variable conversion rates and seemed likely to be highly dilutive. In August A123 announced that China’s Wanxaing Group had agreed to provide up to $450 million of additional financing in exchange for an 80% ownership stake. The combination of these three transactions has had A123 printing stock faster than the Fed prints money ever since.

On June 30th A123 had a total of 147 million shares outstanding. By August 6th the total had climbed to 170 million and by August 23rd the total had climbed to 202 million. The reason for the explosive ramp in the number of shares outstanding was a decision to leave the toxic securities in place, instead of redeeming them, and to alter the terms of the Wanxaing financing to provide for a variable conversion rate that’s tied to a percentage of ownership rather than a fixed stock price.

During the period from June 30th through August 23rd, total reported trading volume in A123’s stock was 305 million shares, or roughly 5.5 times the number of newly issued shares. Since August 23rd, another 491 million s
hares have traded. Since it’s impossible to tell whether the proportionality between new share issuances and total trading volume has held steady over the last three months, it’s also impossible to estimate the total number of shares currently outstanding. At a minimum I’d expect A123 to report 300 million shares outstanding on September 30th, but the actual number could be far higher. Based on the terms disclosed for the Wanxaing transaction, that would imply a fully diluted share count in the 1.5 billion range.

In light of the production problems it’s experienced to date and a recent brush with insolvency that will be clearly visible on the face of its September 30th financial statements, I continue to believe that Tesla Motors will soon pass its peak of inflated expectations and begin a descent into the Valley of Death that resembles the A123 experience. I don’t want to denigrate Tesla’s accomplishments as the first fledgling automaker to bring a new car to market since DeLorean, but it seems like all of the possible good news is already priced into Tesla’s stock while the bulk of the execution risks and disappointment opportunities have become frighteningly imminent.

I get hundreds of comments every time I mention Tesla’s name. The enthusiastic readers I hear from expect rave reviews, expect high reservation conversion rates, expect demand to skyrocket, expect the Model S to perform flawlessly in heavy daily use and expect Tesla to avoid the delays, defects and missteps that plague even seasoned manufacturers who launch a completely new product. I may be cynical when it comes to the applicability of Moore’s Law in the battery and auto industries, but I’m a firm believer in Murphy’s Law, fondly known as the fourth law of thermodynamics, which states: “If anything can go wrong, it will.”

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

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John Petersen

Last month Lux Research released a bottom-up evaluation of the cost effectiveness of eight energy storage technologies in six grid-scale applications throughout 44 countries, including all 50 U.S. states. Their report titled “Grid Storage under the Microscope: Using Local Knowledge to Forecast Global Demand” predicts that annual global demand for grid-scale energy storage will reach an astounding 185.4 gigawatt-hours (GWh) by 2017 and represent a $113.5 billion incremental revenue opportunity for an industry that currently generates sales of $50 to $60 billion a year.

In the grid-scale sector alone, Lux predicts an average year-on-year demand growth of 231% from 2012 through 2015 when the growth rate moderates to 43% per year for 2016 and 2017. The forecast is tempered, however, by a cautionary note that demand of that magnitude can’t be satisfied because “Believe it or not, the grid storage market will be supply-constrained in 2017.”

Technologies and players

The eight energy storage technologies Lux evaluated for their new report are summarized in the following table, along with the price and performance metrics highlighted in beige. Comparable price and performance metrics from a recent Sandia National Laboratories “Energy Storage Systems Cost Update” are also presented and highlighted in green. While there’s room to quibble over the details and users of Lux’s Smart Grid Storage Tracker and Demand Forecaster can fine tune the price and performance variables to suit their analytical needs, the parallels between the two sets of system cost estimates are close enough to lend substantial credence to Lux’s basic assumptions.

Based on a comprehensive evaluation of various local factors including “utility market structure, generation technology compositions, peak power demand, demand growth rate, infrastructure growth rate, penetration and growth rate of intermittent renewable energy sources, grid reliability, [time of use] electricity rates, commercial demand charges, and outage costs,” Lux concluded that Japan, China, the United Kingdom, Germany, and the State of Arizona will be the top five regions for grid storage and collectively account for about 58% of global demand in 2017. Japan and China will each account for about 18%; United Kingdom and Germany, will each account for about 9%; and the US will account for about 23%, with Arizona alone accounting for 4% of global demand.

Some of the more surprising conclusions in the Lux report related to the relative importance of the various grid-scale applications by 2017. For me the biggest surprise was the conclusion that the current killer apps, ancillary services and renewable energy integration, will only account for 1.4% of global demand in 2017 while renewable energy time shifting will account for an impressive 54% of demand, or $61 billion in annual revenue potential. I was also surprised by the conclusion that high spreads between peak and off-peak electricity prices would create a major market opportunity in the residential and commercial sectors, which account for 28% and 17%, respectively, of the 2017 demand forecast.

Based on their in depth evaluation of application requirements and the price and performance of the eight energy storage technologies they evaluated, Lux reported that:

Li-ion takes the early lead, but fades to cheaper alternatives. Li-ion batteries for [power] applications capture nearly 80% of the market in 2012, but quickly fade as cheaper molten-salt and flow batteries become available in the ensuing years. By 2017, Li-ion batteries capture only 13% of the market, yielding 33% to vanadium redox batteries and a nearly even split of the rest of the market between sodium sulfur, sodium nickel chloride, and zinc bromine flow batteries at 19%, 15%, and 19%, respectively. This indicates the short timeframe Li-ion battery developers have to reduce their costs. In the long run, systems with discharge durations between two hours and four hours are the “sweet spot” size for most grid applications. Currently, Li-ion batteries are sought-after due to their availability and proven performance. Flow batteries and molten salt batteries, both of which perform well for longer discharge applications, have shown comparable performance to Li-ion batteries at a fraction of the cost and are currently limited by their availability and proven reliability. Flywheels retain 2% of the market in 2017 and find their niche in relatively small frequency regulation market and other niche applications that require rapid discharge capabilities, short durations, and an extremely long cycle life.

Many participants in the lithium-ion battery sector are developing and demonstrating grid-scale energy storage products. To date, the highest profile player has been A123 Systems (AONE), which has shipped over 90 MW of storage systems for ancillary services and renewables integration. While Johnson Controls (JCI) has been quiet about its plans to package and sell lithium-ion batteries for stationary applications, I have to believe the global footprint and sterling reputation of its building efficiency unit will make it a formidable competitor in the commercial markets.

Sodium Nickel Chloride, or Zebra, batteries have been a relatively low profile chemistry for years. They were originally developed by Daimler for use in electric vehicles but failed to gain much traction in that market despite a decade of solid performance in a 3,000 vehicle fleet that’s logged over 150 million kilometers. In 2009 General Electric (GE) announced plans to build a NaNiCl factory in New York. In 2010, Italy’s Fiamm bought a controlling interest in Swizerland’s MES-DEA, the sole European manufacturer of NaNiCl batteries, and is now doing business as FZ Sonick. Both firms are rapidly ramping their marketing efforts on grid-scale systems.

The largest manufacturer of sodium sulfur batteries is Japan’s NGK Insulators (NGKIF.PK), which was the global leader in grid-scale storage for the over a decade with an installed base of over 300 MW. NGK had a spotless safety record until late last year when they suspended NaS battery sales and asked customers to refrain from using installed systems pending completion of an investigation into the cause of a battery fire in Japan. Last year, NGK accounted for roughly 54% of the grid-scale energy storage market. While NGK’s market share will fall as other technologies gain traction in the grid-scale markets, its revenues should continue to ramp because of rapid overall growth rates in the sector.

There have been no publicly held companies in the vanadium redox battery space since China’s Prudent Energy bought VRB Power Systems in January 2009. At present, ZBB Energy (ZBB) is the only publicly held company that’s active in the zinc bromine battery space. ZBB is actively exploring markets for a
both zinc bromine flow battery that was originally developed by Johnson Controls and novel technology agnostic control systems that can integrate and manage a variety of conventional and renewable power sources and energy storage technologies.

I was a bit surprised that lead-carbon wasn’t included in Lux’s list of 2017 market leaders. When I asked the analyst why, he explained that the two leading developers of lead-carbon batteries, Axion Power International (AXPW.OB) and East Penn Manufacturing, were currently launching new products and conducting demonstrations, but didn’t yet have enough price and performance history to warrant inclusion at anything beyond placeholder values. He also agreed that if Sandia’s price and performance estimates prove accurate, lead-carbon could be a formidable competitor and garner a substantial market share.

Supply constraints

While Lux’s bottom-up demand analysis contemplates an enormous ramp in new demand over the next five years, they acknowledged that the global battery industry can’t satisfy that demand with existing and planned infrastructure. They didn’t drill down into the details for the current report, but I think it’s critical for investors to understand the magnitude of likely shortages and the market dynamics that are likely to flow from crushing supply constraints.

In its new report Lux predicted that lithium-ion batteries could account for up to 13% of $113.5 in demand by 2017, or roughly 20 GWh of batteries. To put that number in perspective, last year Lux reported that total global manufacturing capacity for large lithium-ion batteries would grow to about 30 GWh by 2017, which means demand from stationary applications alone could absorb almost two-thirds of global manufacturing capacity. This is good news for lithium-ion battery manufacturers in the short-term because it will help absorb an expected glut of manufacturing capacity. Over the long-term Lux believes lithium-ion batteries are not economically sustainable for grid-scale applications because:

“Li-ion batteries developed for transportation applications are energy dense storage devices. Stationary storage projects rarely value this metric, resulting in wasted value for grid-tied Li-ion battery systems. Rapidly evolving technologies with equivalent or superior performance metrics and substantially lower costs and higher resource availability will take over the majority of the grid storage market in the coming years.“

For decades the battery industry has striven to standardize battery chemistries, formats and manufacturing methods. As a result, batteries are usually viewed as fungible commodities with little product differentiation or brand loyalty. In the final analysis, purchase decisions for grid-scale storage systems will be driven by the customer’s specific power and energy needs and the ability of a particular battery chemistry to serve those needs at the lowest total cost of ownership. Absent a clearly demonstrable performance advantage, comparable products within a technology class will invariably be forced to compete on the basis of price, which will ultimately compress margins.

Any time there are several competing uses for a supply constrained commodity, the buyer that’s willing to pay the highest price will get the first call on available production. If electric vehicle manufacturers are willing to pay up and outbid grid-scale storage users, they’ll undoubtedly get enough batteries to satisfy their needs. If automakers are not willing to pay a higher price, battery manufacturers will undoubtedly serve their own economic interests first. On balance, I believe rapid growth in grid-scale energy storage will create substantial secondary problems for electric vehicle manufacturers who are already grappling with fundamentally uneconomic products.

As former director of Axion Power International, I’m intimately familiar with the work that’s being done in the field of lead-carbon battery technology. Based on everything I know, I believe that Sandia’s cost estimates are reasonable and that lead-carbon batteries will be a good choice for a large number of grid-scale storage applications that don’t require extreme performance. It doesn’t take much market share in a $113.5 billion niche to make for a very successful company.

Disclosure. Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long interest in its common stock.

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John Petersen

In 1883 Thomas Edison said, “The storage battery is one of those peculiar things which appeals to the imagination, and no more perfect thing could be desired by stock swindlers than that very selfsame thing. … Just as soon as a man gets working on the secondary battery it brings out his latent capacity for lying.”

The problem isn’t so much the batteries, which haven’t improved all that much over the last century. Instead, the problem lies in the fertile imaginations of scientists, engineers, politicians, ideologues, analysts and investors who focus on new energy storage applications, overestimate the potential, underestimate the challenges and make a quantum leap from the reasonable to the absurd. There is no issue in the energy storage sector that’s more wildly over-estimated than the short- to medium-term potential for using manufactured energy storage devices in the electric grid.

This week, the Smart Grid Intelligence Team at Lux Research, aka the hype busters, presented a 46 minute webinar on the current state of the grid-based energy storage market and its likely development over the next few years. After listening to the live webinar I asked Lux if they’re be willing to share their work with my readers and they graciously agreed. Readers who want to listen to the entire webinar can do so by clicking on this link to “Grid Storage: Connecting dots in a fragmented market.” For readers who don’t have the time for the webinar, I’ll try to summarize some of the highlights.

While respected institutions like Sandia National Laboratories have estimated that grid based energy storage represents a $200 billion opportunity, the global installed base of manufactured energy storage devices cost about $1.1 billion, roughly half of that capacity was built in 2011, and a similar amount of new capacity will be added next year. The following table offers a more granular analysis that allocates the installed base and planned additions, expressed in millions of dollars, among the five storage technologies Lux evaluated.

By 2015, Lux forecasts an annual market for grid-based storage in the $1.5 billion range. Other firms like Pike research expect faster growth rates. While the prospect of rapid and sustained growth is enough to awaken the animal spirits in all of us, Lux took pains to emphasize several key points:

• There is no silver bullet solution for the grid and several technology classes will be important;
• There is no unified mass market for grid-based energy storage technologies;
• The market for grid-based energy storage is highly fragmented and extremely price sensitive;
• The two largest market segments for grid-based storage are behind the meter installations for commercial and industrial facilities and in front of the meter facilities for renewable power generators;
• Most buyers of grid-based energy storage will require several years of reliability data before making a major capital commitment to any energy storage technology; and
• End-users of energy storage systems will try to aggregate as many value streams as possible to maximize the total economic benefit of their energy storage investments.

For energy storage investors, the most important question is always “Cui Bono?,” who will benefit. While there are a lot more questions than answers at this point and Lux did not focus on the principal players in the emerging grid-based storage sector during the webinar, there is a fairly short list of public companies that are actively involved in developing large scale energy storage systems for the grid connected market including:

• Japan’s NGK Insulators (NGKIF.PK), which has built and installed the overwhelming bulk of the high-temperature sodium-sulfur battery systems in the world and is currently trading at about 40% discount from recent highs because it has suspended battery sales pending investigation of a recent fire.
• General Electric (GE), which has built a new manufacturing facility for a high-temperature molten salt device known as the Zebra battery and is preparing to launch a series of products for large commercial and industrial users.
• A123 Systems (AONE), which has a strong working relationship with AES Corporation (AES) and is making rapid progress in the renewable power generation market with its high-power lithium-ion battery systems that are used for output smoothing and renewable to grid integration.
• Altair Nanotechnologies (ALTI), which has demonstrated a high-power lithium-ion battery system for frequency regulation and negotiated a significant sale in El Salvador that’s bogged down in regulatory approval issues.
• Enersys (ENS), which manufactures advanced lead-acid batteries for commercial and industrial power quality, load leveling and uninterruptable power supply systems.
• Axion Power International (AXPW.OB), which has joined with Viridity Energy to demonstrate a behind the meter energy storage system for commercial and industrial facilities that integrates utility revenue and demand response savings with conventional power quality, load leveling and uninterruptable power benefits to users.
• Active Power (ACPW), which is a world-leader in flywheel based power quality and reliability systems for data centers and other critical infrastructure facilities that require absolute reliability.
• ZBB Energy (ZBB), which recently completed a three-year validation test of its flow-battery system in cooperation with Australia’s Commonwealth Industrial and Scientific Research Organization, is awaiting UL approval for its power control systems and is rapidly expanding its sales and marketing team.

My clearest takeaway from the Lux webinar is that regulated utilities will probably be among the last to invest heavily in grid-based storage because of their risk aversion and their need to justify capital spending to regulatory agencies that are charged with protecting the ratepayers.

On the power producer’s end of the grid there are significant opportunities for storage systems to smooth and stabilize power output from wind and solar while optimizing revenue streams to the owners of the facilities. At the power user’s end of the grid, the most readily quantifiable values will be derived by commercial and industrial customers who can aggregate the internal benefits of power quality and reliability with external monetary benefits from demand response programs and providing ancillary services to the utility side of the meter. Over time, the most successful technologies will build a long enough track record of reliability to take a direct run at utilities and transmission system operators, but it’s not reasonable to expect the utility and transmission markets to develop rapidly over the next five years.

It’s far too early in
the game for me to try handicapping likely winners and losers, but most of the companies in the list are currently trading at lottery-ticket prices that will not be available once their competitive positions in this rapidly expanding niche are better understood.

Disclosure. Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

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John Petersen

Tom Lehrer is frequently credited with a quip that perfectly summarizes my feeling about the financial markets in the third quarter, “Apart from that Mrs. Lincoln, how did you enjoy the play?” During the quarter we were given box seats to classic political opera in two acts. Act One was set in Washington DC while Act Two moved to Europe so we could hear the same tortured songs of woe in a different language. We all know the opera has to end with the immensely popular “Kick the Can Chorus,” but we suspended disbelief, bought into the fear and held a massive liquidation sale. As a curtain call it looks like we’ve let our elected demagogues scare us into a new recession. Do you ever wonder if the system might work better if ballots included “None of the above” as an alternative and required the offices to remain vacant if nobody won a majority?

For the third quarter the Dow, S&P 500 and Nasdaq indexes were down an average of 13.1% and it was even uglier in energy storage where the best names in the business were beaten down by 35% to 50%. The following table summarizes the price performance of my tracking list for the year and the quarter ended September 30, 2011.

It was a bloody time that’s creating a great buying opportunity. While it’s still a little early to buy the biggest companies in the sector, it’s a wonderful time to do some homework, map out a strategy and prepare for the inevitable bottom.

For reasons I can’t explain, several energy storage companies move in the same direction as the S&P 500, but react more violently to changing market sentiments. To illustrate the phenomena I’ve created a graph that compares percentage price movements for Johnson Controls (JCI), Enersys (ENS), Exide Technologies (XIDE) and Active Power (ACPW) against the S&P 500 using 10-day volume weighted moving averages instead of daily prices.

While the pattern is less obvious over longer periods, the following graph that tracks the percentage price movements since April 1, 2009 shows that the pattern holds in both up and down markets, which suggests that buying storage at the next bottom should have a significantly greater upside potential than buying the broader market at the bottom.

The next bottom may well be the buying opportunity of a lifetime as energy storage emerges as an investment mega-trend and the market realizes that cool has no place in an industrial sector where cost matters and the law of economic gravity reigns supreme. Core positions in Johnson Controls, Enersys and Exide Technologies are a must have for all serious storage investors. Depending on your risk appetite, more speculative companies like Active Power, Axion Power (AXPW.OB), Maxwell Technologies (MXWL) ZBB Energy (ZBB) and perhaps Beacon Power (BCON) also merit serious consideration.

For the last three years I’ve cautioned investors that the media circus around plug-in vehicles and exotic batteries was a transitory phenomenon driven by ill-conceived ideology instead of common sense. The upcoming recession will force the government and the markets to recognize that plug-in vehicles are unconscionable waste masquerading as conservation and a luxury no nation can afford, much less subsidize at relevant scale.

My last chart for the day compares the market capitalizations of my tracking list companies on September 30, 2009 and September 30, 2011. While Axion Power and Exide are far stronger today than they were in the fall of 2009, most of the companies that lost a lot of market value have also lost a lot of ground.

The simple but undeniable reality is everybody wants better batteries but nobody wants to pay a premium price for them. The green in an ordinary consumer’s wallet will always take priority over the green in his cocktail conversation. Manufacturers of objectively cheap products that can do the required work are certain to thrive over the next five years. Developers of exotic batteries for plug-in vehicles and other uneconomic applications are likely to follow the same tragic path as Ener1 (HEV).

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

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Tom Konrad CFA

How material is the failure of one of Beacon Power’s (BCON) flywheels on July 27?

Last week, I published an article Four Clean Energy Value Stocks I’m Buying Now, including Beacon Power as one of the four.  My rationale for including Beacon was:

Beacon has been operating their first commercial scale 20MW flywheel energy storage plant  since early this year without mishap, achieving full capacity in June.  They are set to begin construction of their second 20MW plant later this year, 54% of the $53 million cost of which will be covered by state and federal grants, making the funding of the plant practical even for a company with a high cost of capital like Beacon.  If both plants continue the relatively trouble-free operation seen so far, that experience will pave the way for less capital-intensive turn-key sales for flywheel energy storage plants worldwide.

I was quickly contacted after my article by two disgruntled Beacon shareholders who informed me that there was indeed a “mishap” at Beacon’s Stephentown plant in late July.  I had missed this incident in my research, which had consisted of a news search, reading management’s discussion and analysis and the financial statements in the quarterly report, and a discussion with a Beacon employee in early July.

I generally prefer not to invest in immature technologies, but was drawn to Beacon because they seemed to have a track record with their flywheels sufficient to mostly eliminate technology risk, given Beacon’s massively depressed price (currently around $1), and the fact that the company is reaching the point of significant revenue ramp, which has the potential of giving the brave investors who buy now returns of many multiples in just a few months or a year. 

Technology risk once again loomed large in my mind.  Given the information I had, I could not decide if the failure represented an isolated incident, or was a harbinger of more to come.  Was this the failure of “one out of 200 flywheels” as management prefers to characterize it, or was it the failure of one of 200 flywheels over the average 3-4 months the flywheels had been in operation?

If we only expect a failure of 1-2 flywheels (0.5% to 1%) over the life of the plant, that should not radically change the economics of the technology.  However, if we expect a failure rate of 1 flywheel every six months or so, that will make a significant difference to the operating costs of a plant that was supposed to be nearly maintenance free. 

Given this unresolved question, and the unpleasant surprise of not hearing about the potential bad news until after the fact (which made me wonder what other bad news I had not heard about) I decided to sell first and ask questions later.  Since it was the day after my article was published, I updated my article discussing the decision.

In Beacon’s defense

Beacon’s position on the failure of the flywheel was that it simply was not material.  The flywheel failed as designed, did not damage the rest of the facility, and its repair was “consistent with the reserves” set aside for operations and maintenance at the Stephentown plant, as Beacon CEO William Capp told me in a phone conversation this week. 

I was never worried about Beacon’s technology being dangerous.  Certainly, you would not want to be standing next to a flywheel when it failed, but such failures are rare even in the most pessimistic scenario I can come up with, and people do not stand around Beacon’s plants for the very good reason that they operate with extremely high voltage electricity.

My question is then, how many more flywheels are likely to fail?  Unlike some commenters, I do not immediately assume that once a flywheel is through a period of “infant mortality” they can be assumed to be safe.  I see two possible sorts of failures: failures due to manufacturing defects and failures due to wear and tear during operation. 

Beacon’s engineers believe that this failure was infant mortality, so if we are to determine how much more infant mortality we are likely to have, we need some idea how long it takes this sort of defect to manifest.  Capp told me on the phone that the particular flywheel in question had been in operation for a “number of months” and that he did not know exactly how long that was.  I’ll assume it was four months, to make math simpler.

Doing the math

It’s very difficult to calculate failure rates from one data point, but with a Bayesian approach we can get some idea of what the failure rate looks like.  I think it’s a fairly safe assumption that a flywheel with a defect is most likely to fail early on, so an exponential distribution is an appropriate probability model.  Since we only have one incident to go by, the best guess for the average lifespan of defective flywheels is the lifespan of the one that broke.  That means that the rate parameter λ will be the inverse of the lifetime of the defective flywheel, and any defective flywheel will have a 63% chance of failing in the first four months, a 86% chance of failure in the first eight months, and 95% chance of failure in the first year.

We also know that the first 30 flywheels which were in operation for one to three years at Tyngsboro are unlikely to have any defects, since any one of those which was defective would have more than a 95% chance of failure by now.  Since the 170 relatively new flywheels at Stephentown have been in service for about 4 months on average, more than half of those with manufacturing defects should have failed by now, meaning that it would be very surprising to see more than one more failure from initial defects, and not seeing any more failures is the more likely possibility.

Hence, if this failure was caused by a manufacturing defect as management believes, they are right that the total failure rate of flywheels from manufacturing defects is immaterial because it is less than 1%.

The other possibility is that the failure was due to wear and tear.  In this case, we would expect the failure rate to be fairly constant over time.  Given the average of two years of operation for the 30 flywheels at Tyngsboro, and the average four months operation of the 170 new flywheels at Stephentown, Beacon has about 120 flywheel-years of experience, during which they have experienced one failure.  So if this was a wear-and-tear malfunction, we would expect 0.6% of flywheels to fail each year, or 12% over the plant’s expected 20 year lifetime.  This was the possibility that scared me into selling shortly after I wrote the article. (At the time, I did not have the numbers I do now, and my off-the-cuff estimate for the failure rate was considerably higher.)

However, we don’t know that the failure arose from wear and tear, and Beacon’s engineers believe that the f
ailure was due to a manufacturing defect.  Given that information, I will assign a 2/3 probability that this was a manufacturing defect, and a 1/3 probability that this was wear-and-tear. 

Given all these assumptions, my estimate of the likely failure rate of flywheels at Stephentown over the plant’s 20 year planned life will be 4%, which is probably low enough to be manageable with the plant’s planned operations and maintenance reserves.

Conclusion

Although my estimates contain more uncertainty than hard data, I now feel that, Beacon management is likely correct that the failure of one or two flywheels in the first year of operation at the Stephentown plant is not material.  Any flywheel failures after the first year of operation would be a much greater cause of concern, as that would lend credence to the possibility that flywheels sometimes fail due to wear and tear, something that would have much greater impact on the cost of operating a flywheel plant.

Hence, I return to my original position that Beacon Power (BCON) is a compelling if highly speculative stock pick at the current $1 price.

DISCLOSURE: Long BCON.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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By: Matthew Hoff

For power providers, grid stabilization has been a rising concern in recent years, especially because of the increasing use of intermittent energy sources such as wind turbines. Maintaining a stabilized energy grid is difficult because of the unpredictability of these intermittent energy sources. If wind turbines, for example, are supplying 5% of the overall power for the electric grid and the turbines stop moving because the air grows still, the grid has to find a way to kick into overdrive to compensate for this sudden decrease in energy. It’s not as easy as it sounds.

Philip LeGoy, senior consultant of power plant design for Ireland’s Electricity Supply Board, says his country is regularly obtaining 25% of its electricity from wind. “If I’ve got 1000 megawatts of wind power,” he says, “it is a detrimental thing when it goes offline.”

When the amount of energy provided by wind turbines falls short of the amount of electricity needed to operate a city’s power grid, the grid has to work harder to balance the discrepancy between the energy needed and the energy being produced. Demand for energy fluctuates rapidly between high need and low need, and power plants often cannot throttle power output to accommodate sudden increases in demand without suffering major repercussions.

Poor grid balance and stabilization can result in high network losses, equipment overloading, unacceptable voltage and frequency levels, voltage instability and even outages. These repercussions are indeed detrimental, to say the least. In order to successfully harness, maintain and distribute vast amounts of power, the active and reactive power balance in a system must be controlled.

One solution to the grid stabilization issue is to build energy storage plants that connect to the electrical grid. Storage plants help stabilize the grid by quickly providing additional power during periods of high demand (when the intermittent energy source ceases to contribute electricity, for example). In order to accomplish this, the plants store energy during periods of low demand.

While elaborate storage systems have been developed over the years, these older technologies require a net surplus of power in order to generate and distribute the additional electricity. This is counterproductive. Older systems continue to place strenuous demands on power generation plants, causing additional and unnecessary degeneration. They also contribute to the production of harmful greenhouse gases.

Recently, a milestone in environmentally friendly, renewable energy storage was reached when Beacon Power (BCON) announced the opening of the world’s first grid-scale, 20MW flywheel energy storage facility, on June 21st. “We’re very proud to have reached this technical and commercial milestone in building and operating the first grid-scale flywheel-based storage plant in the world,” said Bill Capp, president and CEO of Beacon Power, which worked with Oztek Corp. for power control solutions to bring this vision to fruition.

Oztek, which has been developing and manufacturing advanced inverter, DC/DC, and motor drive controls since 1997, worked to develop vital software and essential control hardware technologies used to interface the large arrays of giant flywheels to the power grid.

The energy storage plant utilizes 200 flywheels, each weighing over 2,800 pounds, to store up to 20 megawatts of power that can then be transferred to the grid during times of high demand. In order to store energy, the flywheels rely on mechanical inertia. The flywheel is accelerated by an electric motor that doubles as a generator upon reversal, slowing down the disc and producing electricity. Since friction must be minimized in order to prolong the storage time, the flywheel is suspended in a vacuum and employs a sensorless permanent magnet motor drive. Oztek designed and supplied the sensorless motor drive as well as the grid tie inverter controller.

The grid tie inverter provides the interface between the flywheel and New York City’s main power grid. Unlike systems implemented in years past, the flywheel system is clean and energy efficient. A very small percentage of the power is lost as heat during transfer, and the system is able to respond to large demand changes in seconds.

“Oztek is extremely proud of its contributions to this milestone in sustainable, utility-scale frequency regulation services,” said Dave Zendzian, CTO of Oztek. “Developing hardware and software solutions to control the 2,800-pound flywheels, as well as operating hundreds of power inverters in parallel, has provided no shortage of technical challenges. Due to the high-power nature of the installation, many of the algorithms employed in the controllers needed to be designed using simulation coupled with design verification on smaller-scale hardware platforms. As such, there are always risks and challenges when you attempt to bring up the full-scale system. To see the system up and running at full capacity is very satisfying for all of us.”

Since New York City has a reputation for being one of the most energy-efficient cities in the world, it is sensible to unveil and deploy the new technology there. Stephen G. Whitley, president and CEO of the New York Independent System Operator, agrees. “New York’s competitive marketplace for electricity provides fertile ground for energy innovations such as Beacon Power’s flywheel system. It’s great to see pioneering technology bringing new solutions to meet New York’s energy needs.”

Beacon’s Stephentown energy storage plant is a new and highly effective answer to an old, stubborn problem, and Oztek’s sensorless magnet motor drive and grid tie inverter controls are essential components of this new power storage technology. Soon it will be common for intermittent energy sources to drain into highly efficient power reservoirs, and companies like Beacon and Oztek are leading the way. Thanks to their ongoing efforts, power providers will save on maintenance costs, and consumers will save on electricity. The environment, too, will reap the rewards

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John Petersen

The most widely misunderstood subject in the field of energy storage is the potential for grid-based applications. They fire the imagination because the grid is so pervasive and the need is so great. They also present immense challenges to storage technology developers because the fundamental economic value per unit of grid-based energy storage is very low. While the subject of grid-based storage provides rich fodder for media reports and political posturing, the reality bears little relation to the perception. On March 9th, Lux Research published a sorely needed reality check in a new report titled “Grid Storage – Islands of Opportunity in a Sea of Failure,” which concluded that “Amongst the sea of possible scenarios, there are few combinations that offer an acceptable payback, while endless potential pitfalls exist.”

Lux analyzed the business scenario for 14 emerging energy storage technologies across 23 applications to identify the best investments for utilities, transmission operators, independent power producers and building operators in California, Germany, and China. The report was based in large part on data from a December 2010 study published by the Electric Power Research Institute, “Electricity Energy Storage Technology Options – A White Paper Primer on Applications, Costs and Benefits.” While the Lux report and the EPRI study both offer detailed insight for institutional investors that are contemplating investments in energy storage, they’re too detailed for individual investors who are mainly concerned with managing their personal portfolios.

The first thing individual investors need to understand is that while global electric power generating capacity is roughly 4,000 GW, total installed energy storage capacity is less than 128 GW, or 3.2% of generating capacity. The second thing they need to understand is that substantially all of the existing storage facilities are pumped hydro. The following graph from the EPRI report provides additional color on how much installed capacity really exists for the exciting new energy storage technologies the press is gushing over.

While EPRI’s installed capacity graph should be enough to make cautious investors pause to check their assumptions, another graph from the EPRI report is far more useful. It shows the estimated size of the potential market for 15 key energy storage applications on the horizontal axis and then shows the maximum price per kWh of storage capacity an end-user would be willing to pay on the vertical axis. The red annotations are mine.

Wholesale frequency regulation, the application that’s getting the bulk of the media attention, is shown on the left-hand side of the graph. It’s the primary target for cool storage technologies like flywheel-based systems from Beacon Power (BCOND) and lithium-ion battery based systems from Altair Nanotechnologies (ALTI), A123 Systems (AONE), Ener1 (HEV) and others. Despite the media’s excitement, the reality is wholesale frequency regulation represents less than 1% of potential demand for grid-based storage. The other 99% can only be served by cheap energy storage technologies. Less than a half of the potential market will ever be addressable by manufactured energy storage devices. The rest will remain out of reach without widespread deployment of pumped hydro, compressed air and other large-scale electro-mechanical systems.

There’s little question that the potential markets for manufactured energy storage devices in grid-based applications are big enough to support several successful companies. They’re just not as easy as the media reports would have us believe. Wholesale frequency regulation in the US is probably limited to something on the order of 400 MW, which works out to about $1.6 billion in domestic revenue potential. The bigger prize is the $16 billion of potential demand for manufactured systems that can be installed at a price point of $500 to $1,700 per kWh. Globally, those target markets are closer to $5 billion and $50 billion, respectively.

Of the electro-chemical energy storage technologies discussed in the EPRI report, conventional and advanced lead-acid batteries and flow batteries usually offered the best cost profiles for the work of transmission and distribution upgrade deferral in both fixed and transportable formats. The economics remain challenging when you include the costs of containerization, interconnect equipment and control electronics, but they are within the realm of reason. Once you get beyond short-duration frequency regulation, however, cool technologies don’t stand a chance of being competitive.

The universe of publicly traded US companies that can respond to the need for cheap grid-based energy storage is small. It includes Enersys (ENS), Exide Technologies (XIDE), and C&D Technologies (CHHPD.PK)  in the established manufacturer ranks with Axion Power International (AXPW.OB) and ZBB Energy (ZBB) in the emerging company ranks. Cool technologies will probably continue to claim the lion’s share of the headlines, but cheap technologies will almost certainly claim the lion’s share of the revenues and profits. From an investor’s perspective, those are the only metrics that really matter.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a substantial long position in its common stock.

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John Petersen

In December 2008 I went hunting for opportunities in the energy storage sector and selected six pure-play stocks that seemed seriously undervalued. I bought Enersys (ENS) at $6.00, Exide Technologies (XIDE) at $2.00 and Active Power (ACPW) at $0.26. While Enersys and Exide have been fabulous performers with appreciation to date of 442% and 397%, respectively, Active Power has been the runaway champion with appreciation to date of 923%.

My other three picks have performed poorly. C&D Technologies (CHHP.PK) is down 96% and finalizing a restructuring that will give 95% of its equity to noteholders; so I don’t expect stockholders to recover more than a fraction of their losses. ZBB Energy (ZBB) is down 49% and remains a question because of its weak financial condition. Axion Power International (AXPW.OB) is down 51%, but my confidence in its technology, business model and financial health has never been greater.

A diversified portfolio created in December 2008 with a $1,000 investment in each of my six picks would have been worth $19,218 at Friday’s close, for a two-year portfolio appreciation of 220%. In comparison, a diversified portfolio created in December 2008 with a $1,000 investment in each of Ener1 (HEV), Valence Technologies (VLNC), Altair Nanotechnologies (ALTI) and Beacon Power (BCON) would have been worth $2,284 at Friday’s close, for a two-year portfolio depreciation of 43%. In simple terms, cheap energy storage has outperformed cool energy storage for two years running and I don’t expect that dynamic to change anytime soon.

While an occasional glance in the rearview mirror can be an ego booster, it’s rarely helpful for investors who want to position their portfolios for an uncertain future. Since Active Power was the best performer over the last two years; it offers a solid medium-term opportunity; and it can serve as a valuable object lesson in speculative stock picking, the balance of this article will focus on Active Power, its growth opportunities and the object lessons hidden in its history.

A recurring theme of this blog is that the energy storage sector plays by a different set of rules than the ones we came to know and love during the information and communications technology revolution. While IT companies can bloom and grow like wildflowers in an alpine meadow, companies in the energy storage sector behave more like vineyards that need years of careful attention before they begin bearing fruit. Investors who do not understand the differences will suffer.

Active Power manufactures, sells and services mission critical power infrastructure solutions for end-users that demand power quality and reliability at the 99.99999%, or seven nines, level. Past customers include factories, refineries, banks, datacenters, broadcasters, law enforcement command centers, airports and hospitals around the world.

Active Power’s infrastructure solutions are not the simple battery backups most of us think of when somebody mentions uninterruptible power. Instead, they’re multiply redundant integrated power solutions for users that can’t afford outages like the one encountered earlier this month at a Toshiba factory in Japan where a 0.07 second voltage drop interrupted operations and damaged up to 20% of the flash memory chips the plant was planning to ship to customers in January and February of 2011. While the incident was an extreme example, credible estimates peg the total productivity losses from power outages in the US at $150 to $200 billion per year.

Active Power went public in August of 2000 and raised $156 million at $17 per share. It was one of the last major IPOs before the tech-wreck. By September 2000, Active Power’s stock had surged to a peak of $79.75 before starting a hellish decline to $0.25 a share by December 2008. It was a classic case of a young company that had a promising technology and ambitious plans that:

• let irrational expectations run wild in the early days;
• learned its technology and market development challenges were far more difficult, time consuming and costly than anyone expected them to be;
• buckled down to hard work of refining a world-class technology solution and then proving the value of that solution to skeptical customers who can’t afford failures or mistakes; and
• turned the corner at a time of maximum discontent and outright investor capitulation.

Since a ten-year stock price chart is too ugly for an upbeat article like this one, I’ll use a five-year version instead.

The following graph tracks several important financial statement metrics over the last decade. Since hard numbers for 2010 won’t be available till next March, I’ve used September 30th balance sheet data and trailing-twelve-month income statement data as approximations. Active Power’s actual 2010 numbers should be better than they appear in the graph.

While a detailed discussion of Active Power’s products, history and future could fill a small book, there are a few key points that investors need to understand when evaluating Active Power as an investment or as an object lesson.

First, Active Power needed several years to complete the development of its technology and begin installing systems for end-user validation and testing. In the beginning Active Power relied on Caterpillar (CAT) to include its flywheels in power quality systems sold by them. By 2005, it became clear that leaving the marketing function to a large partner that had ready access to several competitive energy storage options didn’t always benefit Active Power. That dynamic forced Active Power to adopt a more proactive marketing approach and when it began integrating Caterpillar generators into its own systems instead of relying on Caterpillar as a principal sales channel, the game changed.

Second, end-users needed several years of validation and testing before there was a broad enough experience base to drive working relationships with first tier industrial engineering firms and distribution partnerships with companies like Hewlett Packard (HPQ) and Sun Microsystems (JAVA). Now that core business relationships are established, along with a widespread end-user experience base, Active Power can focus on selling its product line to a rapidly expanding market based on competitive capital cost, high power density, extraordinary system performance and low total cost of ownership.

Third, Active Power’s target market is growing very rapidly because global reliance on automation and computerization is increasing while the level of pow
er quality and reliability in many countries is declining. Active Power has no desire to stabilize the grid, but it knows that many industrial, commercial and governmental facilities will readily pay a premium price for the power quality and reliability their utilities can’t deliver. Utilities in China typically promise customers 99.1% reliability. While that’s an impressive accomplishment for a rapidly developing economy like China’s, it’s a far cry from the seven nines that many end-users must have.

Fourth, Active Power understands that its flywheel systems must compete with battery-based systems from companies like Emerson/Liebert, Eaton/Powerware and APC/MGE, and rotary systems from companies like Piller, Eurodiesel and Hitec. It also knows that a rapidly growing multi-billion dollar market is large enough to support several successful competitors. Accordingly, its primary goal is market credibility rather than market dominance.

When I first evaluated Active Power in late-2008, it had completed most of the heavy lifting associated with technology development and end-user validation. Its sales were ramping at respectable rates and its losses were narrowing. While Active Power’s balance sheet was a mere shadow of its post-IPO glory, it had enough cash and working capital to finance a full year of operations and continue the orderly execution of its business plan. When I combined those factors with a market capitalization that was hovering around 75% of stockholders equity, it was clear that Active Power had limited downside risk and huge upside potential.

Over time, stocks tend to oscillate between undervalued and overvalued and they only touch fair value briefly during the transitions. If Active Power’s management can stay the course and continue to execute the way they have over the last few years, I believe today’s price is but a fraction of what it will be in 2012. I don’t expect another 923% gain because companies like trees don’t keep growing forever. However a double or even a triple from current levels would not be an unreasonable target given the magnitude of the undervaluation Active Power suffered through in late 2008.

I’ve previously written about the Gartner Group’s Hype Cycle and think it’s worth revisiting here. The following graph shows a stylized version of what happened to Active Power between its peak of inflated expectations in the fall of 2000 and its trough of disillusionment in the winter of 2008. I’ve seen a similar pattern in the stock of every public company I’ve ever represented.

In my view there are only two great times to buy a stock for investment. The first is in the early days of the innovation trigger, but investments at that stage are usually reserved for venture capital and by the time a company makes its public debut, the price is already in nosebleed territory. The second is at or near the bottom of the trough of disillusionment when business and financial fundamentals are sound, but the market is too tired or distracted to recognize the opportunity.

I am frequently and fervently chastised for expressing negative opinions on high-flying market superstars and favorable opinions on unloved companies with simple products. My goal, however, is to point out the risks of companies that are near the peak of inflated expectations and the opportunities of companies that are preparing to emerge from the trough of disillusionment. It’s more art than science, outcomes are never certain and timetables are impossible to predict because of the market’s ability to stay irrational for extended periods. In the fullness of time, however, the weighing machine always does its job.

The next couple years should be a lot of fun as Active Power makes the transition from losing money to making money. It’s always an exciting time where positive surprises generate favorable price swings but negative surprises are discounted as part of the maturation process. I look forward to devoting more attention to Active Power.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and owns a substantial long position in its common stock.

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John Petersen

With only a couple trading days left in 2009, this is as good a time as any for a performance review. The predictions I made at this time last year were pretty solid with an 80% accuracy rate on price direction. For the year, a $1,000 investment in each of my green star companies would have yielded a portfolio appreciation of 67%, which handily beat the broader market indices. That being said, my star and caution ratings were a good deal less prescient because I seriously underestimated the potential of both Maxwell Technologies (MXWL) and Active Power (ACPW), which appreciated by over 200%.

The following table identifies my current universe of pure play energy storage companies, reiterates my outlook at the beginning of this year, summarizes their performance during 2009 and offers my assessment of likely price performance during 2010. In the table, a single star signifies a neutral position.

Valence Technologies (VLNC) scares the hell out of me. It had a working capital deficit of ($10.8) million at September 30, 2009 and its stockholders were under water to the tune of ($74.7) million. Valence is currently surviving on life support financing from the open market re-sale of 650,000 shares every two weeks. The financing is enough to keep the doors open, but leaves little or no room to build a business. My experience with companies in comparable financial straits has not been good.

Ener1 (HEV) is in a better position than Valence, but not much. It had $2.4 million in working capital at September 30, 2009 and then raised $20 million by selling stock to an equipment vendor, so short-term operating cash does not seem to be a problem. Nevertheless, Ener1’s September 30th balance sheet includes a $13.6 million investment that allowed Th!nk Motors to emerge from the Norwegian equivalent of a bankruptcy reorganization; $13.7 million of intangible assets; and $50.4 million in goodwill. Even after the $20 million cash infusion, Ener1 had a net tangible book value of roughly $0.54 per share before fourth quarter losses. Since Ener1 needs to come up with $118.5 million in matching funds for an ARRA battery manufacturing grant that was awarded in August and it also needs an indeterminate amount of working capital, I can’t help but believe that the company will face substantial financial challenges over the next few months. Management may be able to pull off a miracle, but given market conditions I would expect any major financing to go off at a big discount to the current price.

I remain quite bullish on established battery manufacturers with a global presence that trade for mere pennies on the dollar of annual sales including C&D Technologies (CHP) where the market cap equals 11% of sales, Exide Technologies (XIDE) where the market cap equals 21% of sales, Ultralife (ULBI) where the market cap equals 43% of sales and Enersys (ENS) where the market cap equals 67% of sales. All these companies have been actively restructuring operations to improve profitability and when the fruits of those efforts become more obvious, I expect significant upside potential across the board. Since I don’t fully understand the business culture or the market, I’m a bit more cautious when it comes to the Chinese companies.

My two favorite speculations are ZBB Energy (ZBB), which has an ultra-low market capitalization for an exchange listed public company, and Axion Power International (AXPW.OB). I’m far from objective when it comes to Axion because I poured four years of my life and a large chunk of my personal fortune into the company. However, Axion’s tangible accomplishments since I stepped out of an active role are truly impressive. Now that the pain of a recent down round financing is largely history and Axion’s short- to medium-term financial future is secure, it’s all up to the PbC battery.

It will be fascinating to see whether my predictions can be generally right for another year. I’ll revisit this list at least quarterly over the next year and either gloat or eat crow as appropriate. In the meantime I would like to wish everyone a Happy New Year and a prosperous 2010. It should be a fascinating year for the energy storage sector.

Disclosure: Author is a former director of Axion Power International (AXPW.OB) and holds a large long position in its stock. He also holds small long positions in Exide Technologies (XIDE), C&D Technologies (CHP), Active Power (ACPW) and ZBB Energy (ZBB).

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